Credit Swaps in U.S. Rise; GM Plans Bond Sale to Buy Back Stock

A gauge of U.S. company credit risk reached the highest level since a new version of the benchmark started trading last week. General Motors Co. (GM) is planning a three-part bond offering to help buy back stock as Moody’s Investors Service lifted the automaker’s debt to investment grade.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 0.4 basis point to a mid-price of 80.3 basis points as of 4:43 p.m. in New York, according to prices compiled by Bloomberg. The measure earlier reached 81.3 basis points, the highest level since Series 21 of the index was introduced Sept. 20. The benchmark is trading about 9 basis points higher than the previous version, Bloomberg prices show.

GM is selling bonds as offerings surge to $154.5 billion in September, the busiest month since May, according to data compiled by Bloomberg. Sales and trading volumes will increase further after the Federal Reserve announced last week it will refrain from cutting back its monthly bond-buying program, said Matthew Duch, who helps oversee $12 billion as a money manager at Calvert Investments Inc. in Bethesda, Maryland.

“You have a window to get some deals done before the Fed finally does taper, so everybody is kind of rushing to get things done now,” Duch said in a telephone interview.

The measure typically rises as investor confidence deteriorates and falls as it improves. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

GM Sale

GM intends to issue five-, 10- and 30-year securities to help it buy back 120 million preferred shares from the United Auto Workers retiree health care trust, the company said today in a statement.

Moody’s raised the corporate rating of GM to an investment-grade ranking of Baa3, from Ba1, citing expectations for an improved credit profile and competitive position, according to a report by the ratings company today.

The bond sale may price tomorrow, according to a person with knowledge of the transaction who asked not to be named because terms aren’t set. Benchmark issues are typically more than $500 million.

Moody’s Report

Moody’s Covenant-Stress Index, which measures the extent to which speculative-grade companies are at risk of violating debt covenants, rose to 2.7 percent in August from 2.1 percent in July, according to a report from Moody’s analysts led by John Puchalla. That’s the highest level for the index since August 2012. The ratings company’s Liquidity-Stress Index, which falls as speculative-grade corporations’ ability to manage cash needs improves, declined to 3.5 percent in mid-September from 3.7 percent at the end of August.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 4 basis points to 353.6, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 1.4 basis points to 131.1 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 10.4 basis points to 654.5.

Investment-grade debt is rated Baa3 or higher at Moody’s and at least BBB- by S&P.

To contact the reporter on this story: Callie Bost in New York at cbost2@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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